By how many times a loan will be "multiplied," when it is used in the economy and then re-deposited in other banks, is determined by the money multiplier.
In order to generate more interest, a bank lends or invests its excess reserves. The money supply grows by more than one dollar when the monetary base grows by one dollar. The money multiplier is an increase in the available currency.
A money multiplier is one of several closely related ratios of commercial bank money to central bank money, commonly known as the monetary base under a fractional-reserve banking system, in monetary economics.
This multiplier, which is also known as an economic multiplier, is equal to the reserve ratio divided by one. The fact that certain funds are kept as currency by the non-bank public lowers the actual ratio of money to central bank money, often known as the money multiplier.
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